Sarbox has been a game changer in several ways. It was legislated in response to several high profile corporate scandals. There is no dearth of scholarly articles, papers commending this act. However, there are articles which presents the other side of the coin too. Articles by Dah, Frye & Hurst (2014) etc states that companies were following good governance practices before Sarbox came into picture and they reduced their effort to meet the minimum requirements put in place by Sarbox. 

There has been extensive research for both sides of the argument, but the importance of Sarbox lies in restoring the investors faith when it was shattered. Moreover, it set some ground rules which every company is now obligated to follow. In the USA, laws are different for every state and there might be cases where Sarbox would reduce the earlier more stringent scrutiny by state laws on the corporations, but by the same token it would increase the scrutiny in state where laws were lax. 

Hi Naseem,

Thank you for giving attention to this question, which in the U.S. deals with the issue of federal pre-emption of areas of law traditionally left to the individual states.  Aside from SARBOX, there is now the Dodd-Frank Act which is aimed at protecting consumers from the predatory practices of banks, and other financial institutions which preyed on the financially unsophisticated during the "no-doc", "no-interest/balloon payment" era that preceded the financial crisis of 2008. 

Before Dodd-Frank, individual states acting under their "Police Powers" tended to the welfare of resident consumers with state-level consumer protection laws and state-level regulatory agencies.  Now state law must vie with Dodd-Frank; and, as you indicate, some observers actually feel that standards will be lowered under federal guidelines, allowing corporations to get away with more shenanigans than were possible under state laws. 

In my article on SARBOX, I refer to at least one area in which federal law "ups the game" by overcoming the shelter of 'attorney-client privilege' provided by the state-level laws under which attorneys are licensed.  You can read the article here:  

Gwen

Chapter Legislative Excess or Regulatory Brilliance? Corporate Gover...

Hi,

I  suspect that SOX has few effects on the corporate governance of US firms in a long term perspective. You may have a look to these recent papers:

L Baran, A Forst "Disproportionate insider control and board of director characteristics", Journal of Corporate Finance 2015, 35 ,p 62 - 80.

X Chang, H F Zhang "Managerial ebntrenchment and firm value: A dynamic perspective", Journal of Financial and Quantitative Analysis 2015, 50, p 1083 -1103.

Best regards.

Dear Gwendolyn,

Some researchers argue that corporate governance substitutes governmental (i.e. statutory) intervention and regulation. This idea appears defensible if you look back on the evolution of corporate governance. Therefore, if corporate governance mechanisms struggle to achieve the intended results, governmental / statutory intervention occurs. Hence, the question is probably not whether the benefits of federal law outweigh the detriment, but what could be another (third?) alternative. For further reference, please find attached the following paper: Pargendler, M. (2014). The Corporate Governance Obsession.

Paul

Thank you, Paul.  Pargendler's paper and your comment offer fresh insight!

Gwen

Dear Gwendolyn,

You are welcome! To be honest, so much has been published on corporate governance in support of what is generally accepted conventional wisdom, that I really appreciate to study a new view point as that of Pargendler, even if I may disagree in detail.

Paul